Innovation Marketplaces, Explained

Published on March 13, 2018

A marketplace that uses the latest technology may boost e-commerce.

What is an innovation marketplace?

It’s an e-commerce platform for indie manufacturers.

As much as e-commerce has been transformative for consumers, many manufacturers and inventors have been left out of the technological retail revolution. It could be particularly challenging for indie manufacturers and inventors. They often find it difficult to make the leap from the design phase as a garage startup to manufacturing and making their way to the market.

This is where innovation platforms come into play. They allow inventors to bypass traditional product lifecycle hurdles, having to compete with established manufacturers and retailers.

Innovation marketplaces allow them to sell directly to their end-buyers.

How does a Blockchain-powered innovation marketplace work?

It connects buyers to niche manufacturers.

Such a platform gives product inventors and niche manufacturers cheap access to their target market. It connects buyers and manufacturers directly in a decentralized environment, where they can trade on their own terms.

Buyers have access to a wide selection of original novelty items at near-manufacturer prices.

Product owners, in turn, can promote and sell to an eager market, without large upfront investments and commissions.

How are they different from regular e-commerce platforms?

Well, you can buy directly from inventors and manufacturers.

Regular blockchain marketplaces connect buyers and sellers, pretty much as any online platform does. Unlike them, innovation marketplaces are intended to help specific target groups of buyers and sellers.

Vendors are indie manufacturers, selling their products in a young, unknown niche. Buyers, in turn, are adventurous early adopters interested in innovative products.

With Blockchain, marketplace participants can monitor and moderate products and watch for counterfeit or illegal items and knock-offs. This allows the creation of a safe and transparent marketplace with original products sold at fair prices.

How do buyers and sellers benefit from such marketplaces?

Prices are low since platforms cut out the middleman.

Traditionally, inventors and manufacturers of new products have needed large marketing budgets and business savvy to reach their buyers. In addition, they need to freeze substantial financial resources in “accounts receivable” with long-term payouts and allocate large budgets to storage, fulfillment, etc.

Due to such challenges, many innovative product owners have struggled to reach their audience, and their products have remained limited to a local market.

In addition, middlemen inflate the product cost at every step of the chain. When it finally hits the shelves, the end-user ends up overpaying.

Blockchain can fix many of these flaws. Innovation marketplaces eliminate middlemen, acting like a conduit between manufacturers and end-buyers.

And why not Amazon and Kickstarter?

They carry high costs and work for only part of the cycle of taking a new product to mass market.

Many inventors have used Kickstarter to get their projects off the ground and in front of the right audience. After a successful crowdfunding campaign, they can sell their product on the world’s largest e-commerce platform, Amazon.

Recently, however, the blockchain technology has taken on Kickstarter as well.

Entrepreneurs raising funds on Kickstarter have to be prepared to pay the platform a 5% fee on the capital. Payment processes fees also stand at between 3% and 5%. Such costs result in higher product prices for backers. Costs on Amazon are also substantial, and competition can be brutal.

Kickstarter does not guarantee successful market entry. After the end of the campaign, inventors face the same problem they did at the start of it – how to go from niche to mass market.

There is a significant market chasm between Kickstarter and Amazon or other mass marketplaces. A void which the decentralized technology and innovation marketplaces can help inventors cross.

So how does Blockchain help exactly?

Ensures trust, transparency and low prices.

It allows for building transparent and reliable systems for quality control, fulfillment, and customer feedback. It ensures fair and objective vendor ratings and product reviews which cannot be changed or manipulated. All this creates mutual trust between consumers and vendors.

Smart contracts can allow buyers and sellers to enter into an agreement and execute self-regulated mutual settlements.

Thanks to this “digital trust”, communities can function in a decentralized environment, allowing vendors, buyers and investors alike to benefit from low barriers and agile business processes.

Get it, but how would that work?

Let’s see.

One example of a project for such a marketplace is Hamster marketplace. The project aims to allow buyers to find one-of-a-kind products and buy them without a middleman markup.

The coin, issued by the company, will be one of a number of payment methods on the platform. While buyers will be able to make purchases in fiat, shopping with tokens will allow them to buy with a zero commission.

The token will enable vendors to pay for service fees on the platform, place advertisements and others.

How does blockchain voting work?

For voting on a certain decision, the platform will use a peer-to-peer network, that is based on the first ever released proof-of-stake (PoS) consensus protocol, Peercoin.

The consensus algorithm validates a certain version of the blockchain. In proof-of-work (PoW) protocols like Bitcoin, consensus comes from miners using their resources to “vote” on validating the extended blockchain. In exchange for their resources and vote, they are rewarded with newly minted coins.

With PoS, the method of blockchain voting (i.e., validation) changed from users having to provide their resources to staking their coins.

How do such platforms help vendors?

They tap into existing audiences of indie manufacturers.

Crowdfunding platforms’ audiences are usually early adopters and visionary buyers. They are very receptive to innovative products and are most likely to form a core audience around a given product.

To tap into those buyers, innovation marketplaces can attract inventors and manufacturers who already have already executed successful fundraising campaigns. Such inventors are likely to promote organically the marketplace’s benefits to their existing audiences.

Audiences of innovative products tend to be extremely loyal to a project they know. Relative to other consumers, they are more likely to adopt a platform with a wide range of unique curated products, safe decentralized environment, low prices and high level of trust.